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Interest Aligning With Inflation
My question is regarding whether Interest (riba) is permissible given it aligns with the inflation rate. I’ll give some insight into the question because it may require some detail to understand what angle exactly I’m coming from.
The reason I pose such a question is because the time value of money depreciates, hence in a no-interest transaction a borrower say is lent £100 to pay back in 2 years but the borrower on receiving that £100 in two years say inflation was 5%, that £100 although in nominal terms is still the same £100’s but in real economic terms the value is now £95 after the 5% depreciation. This then mean that the lender loses out. Which would potentially lead to the collapse of such a financial system, given it’s not sustainable whatsoever.
When I say inflation rates I’m more talking hypothetically given in the UK the two main measurements of Inflation are the Consumer price index (CPI) and the Retail Price Index (RPI), both of which aren’t fairly reflective of each individual as a whole but instead are an average of the most popular goods/services over a period of time put into a basket of good/services.
So If somehow the interest rate being aligned with the inflation rate such that although nominal value of money rates are equal to real value of money rates, then would interest in such cases be permissible?
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2 Replies
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Interest Aligning With Inflation
updated 3 years, 3 months ago
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To add to the question because he asked me before and I urged him to post on ask Ghamidi- he’s trying to basically say that both methods (CPI and RPI) are not fully accurate from what I understood
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